New funding projection could squeeze Obama's education agenda

In the final push to pass a major student aid bill pending in Congress, funding for key elements in President Obama's education agenda is dwindling.

New Congressional Budget Office projections show that Obama's proposal to cut private banks out of a federal lending program would yield billions of dollars less than he originally hoped. That means less money for priorities that range from early childhood education to college completion, and a scramble is underway to determine what initiatives will be funded and what will be cut if, as expected, the loan overhaul merges with health-care legislation that appears headed for a final vote soon.

"There's a great deal of pushing and shoving under the boards," said Terry W. Hartle, senior vice president of the American Council on Education. The council represents about 2,000 public and private colleges, universities and related organizations, and supports increased student aid.

In September, the administration cheered House approval of a measure that would expand direct government lending and end a program in which private lenders receive subsidies to originate student loans with a government guarantee against default. That switch, at the time, was estimated to produce $87 billion in savings over 10 years.

Now, the nonpartisan CBO projects the overhaul would yield about $20 billion less than that, mainly because many colleges already have switched to direct government lending.

Meanwhile cost estimates for one of the core spending priorities in the original bill -- the Pell grant program for needy college students -- are ballooning as the sour economy creates more demand for tuition aid. There are now more than 8 million grant recipients, and the total could push toward 9 million in the next year.

There is some debate over which estimate for the student-loan bill should apply. But congressional and administration insiders say it appears virtually certain that the lower number will prevail. The overhaul itself also would cost billions of dollars.

Sen. Tom Harkin (D-Iowa), chairman of the Health, Education, Labor and Pensions Committee, said told reporters Thursday that the measure he seeks to enact would channel more than $50 billion into Pell grants. That's up from the House-passed bill's total of $40 billion. In addition, Harkin indicated that the increase in the maximum Pell grant award would be less than the House envisioned. Instead of rising from the current $5,550 to $6,900 over the next decade -- as the House bill projects -- Harkin said the maximum annual award would rise to between $6,300 and $6,500.

Harkin said annual Pell award increases would be tied to inflation, but he omitted mention of a provision in the House bill that would tie the increase to inflation plus one percentage point. Lobbyists say they believe the additional percentage point will be dropped in final negotiations.

In addition, Harkin said the overhaul would reduce the budget deficit by at least $5 billion while channeling $2 billion toward historically black colleges and universities and $750 million to help low-income students enter and complete college.

Harkin and House Education and Labor Chairman George Miller (D-Calif.) indicated that negotiations are ongoing. But it appears that funding is in peril for at least some provisions Obama has sought. The House bill includes $10 billion for community colleges, $8 billion for early education, $4 billion for school modernization, and $3 billion for college access and completion.

Spending in the measure, said Joel Packer, executive director of the Committee for Education Funding, which represents dozens of education groups, appeared likely to "be scaled backed, somewhat significantly."

Meanwhile, the student-loan industry is pushing for Congress to slow down and consider an alternative that would cut subsidies but preserve a role for private lenders in originating loans.

"We oppose any process that generates a bill that needlessly eliminates jobs and valuable student services," said Martha Holler, a vice president of Reston-based SLM Corp., also known as Sallie Mae, the largest student-loan provider.